* German government retains 15.6 pct stake in Commerzbank (Adds Rothschild also mandated)

MUNICH/FRANKFURT, Oct 24 (Reuters) - Commerzbank is working with two investment banks to prepare itself for the event of a takeover bid from a European rival, several people close to the matter said.

Germany’s second-largest lender has hired Goldman Sachs and Rothschild to evaluate its options, including a possible defence scenario, they said. Commerzbank, Goldman Sachs and Rothschild all declined to comment.

Commerzbank has been restructuring ever since an ill-timed acquisition of Dresdner Bank for 9.8 billion euros ($11.53 billion) in 2008. The move forced Commerzbank to take a government bailout, slash jobs, close hundreds of retail branches and rein in its investment banking.

But its strong corporate lending business - Commerzbank specialises in financing Germany’s prized Mittelstand of medium-sized companies - makes it an attractive target for European peers eyeing a stronger footprint in Europe’s largest economy.

Italy’s UniCredit recently told Berlin it is interested in eventually merging with Commerzbank, people familiar with the matter told Reuters last month.

The bank has also caught the eye of other European peers. But the German government, which still holds a 15.6 percent stake, last month denied a report that it favoured a merger of Commerzbank with France’s BNP Paribas.

Berlin has said it would be willing to eventually sell the stake but it needs to get at least 18 euros per share in any sale to avoid a loss on its investment.

Shares in Commerzbank, which has a market capitalisation of 14.4 billion euros ($16.93 billion), were up 2.5 percent at 11.71 euros by 0800 GMT.

While a foreign peer may eventually succeed in buying the lender, a consolidation within Germany is also on the cards.

Top executives at Commerzbank and bellwether Deutsche Bank held unsuccessful talks on a combination last year, a person with knowledge of the matter said at the time.

Regardless of the outcome, private equity firm Cerberus stands to gain from any deal after recently becoming Commerzbank’s second-largest investor with a 5 percent stake.

Goldman Sachs had been in contact with Commerzbank for months, but the mandate was formalised after Cerberus’ investment in the summer, a person close to the matter said.